Row Over Minister Adds to Slovenia Banking Worries

Monday, 25 Mar 2013 | 10:45 AM ETReuters

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Erik Zunec | E+ | Getty Images

Ljubljana, Slovenia

Slovenian Infrastructure Minister Igor Maher resigned on Monday, only five days after taking office in the new cabinet, adding to the problems of a new government striving to avoid a banking collapse to mirror that in Cyprus.

The small eastern European country has been fighting for months to avoid becoming the latest euro zone member to seek a formal international bailout. Bad loans issued by its banks total 7 billion euros ($9.10 billion) or a fifth of national economic output and the cost of ensuring its government debt has risen by a quarter in the past week.

Maher resigned amid allegations he had built a house in western Slovenia without a building permit, a row that has dominated national media and debate just days after Prime Minister Alenka Bratusek's coalition government was sworn in.

Borut Hocevar, an analyst at daily Finance said that the minister's resignation was taking up valuable time although it could be a welcome sign the new government wanted to crack down on corruption.

"There is less time (to avoid a bailout) with every day that passes," he said. "The government should focus on reviving the economy and solving the bank problems rather than dealing with its internal political issues."

Analysts said banks in the tiny Alpine country could be at risk from a deal to save Cyprus that has forced substantial losses on bigger clients.

"There is a risk that the potential impact of the settlement in Cyprus ... could impact the behavior of depositors in Slovenia," said Timothy Ash of Standard Bank.

Bank of Slovenia Governor Marko Kranjec told Reuters on Friday Slovenia had not been affected by the bank run in Cyprus after the EU, the ECB and the IMF demanded a levy on bank deposits in Cyprus in exchange for financial aid.

But Bratusek's center-left government, which took over on Wednesday, has yet to explain how it plans to help the state banks, which will need to raise some 1 billion euros in extra capital this year, according to the International Monetary Fund.

Former Prime Minister Janez Jansa said last week Slovenia would need to issue new bonds by June 6 to avoid financial problems but the new government has not yet revealed its issuance plans.

The yield on Slovenia's 10-year bond retreated to 5.2 percent on Monday after spiking at 5.46 percent on Friday, Reuters data showed.

The five-year credit default swaps, showing the country's risk premium, stood at 295.9 basis points by 12.10 GMT on Monday, up 0.1 percent from Friday's close. They were up by 24.4 percent over the past week, Markit data showed.

Bratusek said last week Slovenia can avoid a bailout. She said her government would focus on reviving the economy and creating new jobs, with less emphasis on austerity enforced by Jansa, whose government collapsed in January over a corruption scandal.